chapter 16

Question 1

unrealized holding gains or losses which are recognized in income are from debt securities classified as

Answer 1

trading

Question 2

unrealized gains and losses on held to maturity securities are reported on the income statement (t/f)

Answer 2

false

Question 3

debt securities that are bought and help primarily for sale in the near term are reported at

Answer 3

fair value

Question 4

unrealized holding gains or losses are recognized as other comprehensive income for

Answer 4

available for sale securities

Question 5

the unrealized gains and losses on available for sale securities are

Answer 5

reported on the portfolio of investments

Question 6

trading securities are generally held for less than

Answer 6

3 months

Question 7

investments are reported at market value on the balance sheet under the equity method (t/f)

Answer 7

false

Question 8

holdings between 20% and 50% of another companys voting stock are accounted for using the equity method (t/f)

Answer 8

true

Question 9

under the equity method, the investment account is decreased by all of the following

Answer 9

dividends paid by the investee
the losses of the investee

Question 10

transfers of securities between categories of investments should be accounted for at cost (t/f)

Answer 10

false

Question 11

impact on stockholders equity of a transfer from available for sale to trading

Answer 11

the unrealized gain or loss at the date of transfer increases or decreases stockholders equity

Question 11

the fair value floor is determined as follows, amortized costs of AFS debt security less fair value of AFS debt security (t/f)

Answer 11

true

Question 12

debt securities may be classified as

Answer 12

held to maturity
trading
availiable for sale

Question 13

a correct valuation is

Answer 13

held to maturity securities at amortized costs

Question 14

investments in debt securities should be recorded on the date of acquisition at

Answer 14

cost plus brokerage fees and other costs incidental to the purchase

Question 15

a requirement for a security to be classified as held to maturity is

Answer 15

ability to hold the security to maturity
positive intent
the security must be a debt securityf

Question 16

the unrealized holding gain or loss on trading securities is reported as

Answer 16

part of net income

Question 17

an unrealized holding gain on a company’s available for sale securities should be reflected in the current financial statements as

Answer 17

other comprehensive income and included in the equity section of the balance sheet

Question 18

an ownership interest of 15% in a company’s voting stock should be accounted for using the

Answer 18

fair value method

Question 19

under the equity method if an investee company generates net income the investor company

Answer 19

records its proportionate share as an increase in its investment account

Question 20

an ownership interest of 30% of the common stock of another corporation should be accounted for using the

Answer 20

equity method

Question 21

if the parent company owns 90% of the subsidiary company’s outstanding common stock the company should generally account for the investment in the subsidiary under the

Answer 21

consolidation method

Question 22

for what assets does the following impairment model used: impairment measured as the differences between the lower of amortized cost or fair value

Answer 22

debt securities measured at fair value with gains and losses recorded in net income

Question 23

a debt security is transferred from one category to another. GAAP requires that for this particular reclassification 1) the security by transferred at fair value at the date of transfer and 2) the unrealized gain or loss at the date of transfer currently carried as a separate component of stockholders equity be amortized over the remaining life of the security. What type of transfer is being described?

Answer 23

transfer from available for sale to held to maturity

Question 24

which of the following is not a debt security a) convertible bonds b)commercial paper c)loans receivable

Answer 24

loans receivable

Question 25

a correct valuation for debt securities is

Answer 25

held to maturity at amortized cost

Question 26

when an investors accounting period ends on a date that does not coincide with an interest receipt date for bonds held as an investment the investor must

Answer 26

make an adjusting entry to debit interest receivable and credit interest revenue for the amount of interest accrued since the last interest receipt date

Question 27

use of the effective interest method to amortize bond premiums and discounts results in

Answer 27

a varying amount of being recorded as interest income from period to period

Question 28

in accounting for investments in debt securities

Answer 28

any discount or premiums is amortized

Question 29

when an available for sale debt security is purchased at a discount the entry to record amortization of the discount includes a

Answer 29

debit to debt investments

Question 30

which of the following is correct about the effective interest method of amortization

Answer 30

it must be used to amortize a discount or premium unless some other method yield a similar result

Question 31

when investments in debt securities are sold between interest payment dates preferable the

Answer 31

accrued interest is credited to interest revenue

Question 32

not generally correct about recorded a sale of a debt security before its maturity date

Answer 32

the entry to amortize a premium to the date of sale includes a credit to the premium on debt investments account

Question 33

when a company has acquired a "passive interest" in another corporation the acquiring company should account for the investment

Answer 33

by using the fair value method

Question 34

KFG corporation purchased a 2% interest in the stock of grander company as part of it equity securities portfolio. concerning this investment KFG will report

Answer 34

a current asset on its balance sheet and dividend revenue and unrealized holding gains and losses on its income statement

Question 35

Kahle corporation purchased a 5% interest in the stock of grander company as part of its equity securities portfolio. concerning this investment Kahle will report

Answer 35

a current asset on its balance sheet and dividend revenue and unrealized holding gains and losses on its income statement

Question 36

Hampton company has a debit balance in the fair value adjustment account that is associated with its equity securities portfolio at dec 31, 2025

Answer 36

the account balance will be reported as an addition to the equity securities account to report the securities at fair value on the balance sheet

Question 37

hulio company has a credit balance in the fair value adjustment account that is associated with its equity securities portfolio at dec 31, 2025

Answer 37

the account balance will be reported as a deduction from the dequity securities account to report the securities at fair value on the balance sheet

Question 38

if the parent company owns 90% of the subsidiary company's outstanding common stock the company should generally account for the income of the subsidiary under the

Answer 38

equity method

Question 39

koehn corporation accounts for its investments in the common stock of sells company under the equity method. Koehn should ordinarily record a cash dividend received from sells as

Answer 39

a reduction of the carrying value of the investment

Question 40

under the equity method of accounting for investments an investor recognizes its share of the earnings in the period in which the

Answer 40

earnings are reported by the investee in its financial statements

Question 41

fair value option allows a company to

Answer 41

report most financial instruments at fair value at any point in time

Question 42

impairments on financial instruments are

Answer 42

evaluated using the CECL model similar to receivables

Question 43

when an investment in a held to maturity security is transferred to an available for sale debt security the carrying value assigned to the available for sale debt security should be

Answer 43

its fair value at the date of the transfer

Question 44

when an investment in an available for sale debt security is transferred to trading because the company anticipates selling the security in the near future the carrying value assigned to the investment when transferring it to the trading portfolio should be

Answer 44

its fair value at the date of the transfer

Question 45

a debt security is transferred from one category to another GAAP requires that for this particular reclassification 1) the security be transferred at fair value at the date of transfer and 2) the unrealized gain or loss at the date of transfer currently carried as a separate component of stockholders equity be amortized over the remaining life of the security what type of transfer is being described

Answer 45

transfer from available for sale to held to maturity

Question 46

transfers between categories

Answer 46

are accounted for at fair value for all transfers